Developments Gamma Holding first half year

Nearly all business units showed a recovery in the second quarter, following a weak first quarter. This recovery is principally due to an improvement in the cost structure and the focus on growth at Gamma Technologies. Gamma Holding's turnover in the first half of 2005 was EUR 431 million (2004: EUR 437 million), a decrease caused mainly in the first quarter.

The operating result in the first half of the year was a profit of EUR 19.5 million (2004: EUR 27.9 million). Restructuring expenses totalled EUR 6.1 million in the first six months, with Gamma Technologies accounting for EUR 1.1 million and Gamma Comfort & Style accounting for EUR 5.0 million. The greater part of these expenses related to the closure of Juapong Textiles in Ghana.

The operating result excluding restructuring costs was EUR 25.6 million (2004: EUR 28.1 million). This was due to a decline in the operating result of Gamma Comfort & Style, which was partly offset by an improvement in the operating result of Gamma Technologies. Furthermore cost reductions were not sufficient to offset entirely the increase in prices of raw materials. Currency movements had an effect of -5%.

The net group result was a profit of EUR 9.7 million (2004: EUR 14.1 million). The net group result excluding restructuring costs increased by 6% to EUR 15.3 million (2004: EUR 14.3 million).

Gamma Technologies

Turnover in the Gamma Technologies sector showed an upward trend as a result of increases in nearly all business units. Furthermore, the first positive effects of 'Planning for growth' became visible, a project launched in 2004 to create the basis for faster growth and improved profits in the coming years.

Turnover showed a net increase of 3% to EUR 238 million (2004: EUR 230 million). Compared with the first quarter, all business units improved their turnover in the second quarter. The increase in turnover was achieved mainly in emerging markets.

In spite of higher prices of raw materials, the operating result (excluding restructuring costs) improved by 11% to EUR 17.2 million (2004: EUR 15.4 million). This increase was achieved in nearly all business units, and was driven by higher volumes and cost reductions.

Belting Technology benefited from rising demand, above all for modular and timing belts. There was strong growth not only in Europe, but also in emerging markets like China, where Belting has been operating since last year via a joint venture. The business unit was successful in winning a number of large orders. For instance, Belting Technology obtained orders to develop conveyor belts for the airports of Dubai, Beijing and Seoul. The business unit also introduced the Maestro press, a mobile service unit for welding conveyor belts on the customer's premises without using additional water-cooling. This is an efficient and clean solution that reduces process interruptions to a minimum. The positive effects of 'Planning for growth' also became visible. Improvements in the efficiency of production were carried out in the Netherlands, Spain and the United States, and production capacity was increased in China. In the Czech Republic and the United States the first steps were taken towards the centralisation of production.

The turnover of Filtration Technology in the first quarter fell short of the corresponding figure for the previous year due to a disappointing level of exports from Europe to Asia, which was not entirely offset by an upward trend in Australia and higher sales of ceramic filters. The distribution network was extended by the addition of a sales office in Japan, which will enable the sector to meet the region's growing demand for high-grade filtration solutions. At the same time, Filtration Technology developed Coreflo, a new weld attachment technique that prevents leaks and reduces production costs. To achieve the targets of 'Planning for growth' it was first necessary to alter the business unit's organisational structure. In July the process of transforming eleven companies into three business units was completed. Furthermore, a new corporate identity was introduced, with ‘Clear Edge' as the new group name and a recognisable house style for all companies.

Coating & Composite Technology showed an upward trend. The business unit benefited from a sharp upturn in demand in almost all product groups. Turnover was up in billboards, tents and roofing structures. Thus, Coating & Composite Technology supplied the roofing structure for three platforms of the historic railway station in Dresden. In addition, special protective clothing was produced for manufacturers of computer chips. Despite a shortage of raw materials, the volumes of bullet-proof materials also showed an increase, partly thanks to orders for bullet-proof vests from the Bulgarian army and the Italian and German police. The distribution network in Italy was expanded for the product group PTFE-coated glass woven fabrics.

Sailcloth Technology was faced with severe price pressure in Europe, but was partly able to offset this because of upward trends in the United States. In particular, the windsurfing and membrane sail segments showed growth; the latter partly thanks to last year's acquisition of D4 membrane technology. In the first half of the year the business unit successfully launched Hydra Net^® Radial, innovative sailcloth in which polyester has been combined with high-grade Dyneema^® yarn for the first time. Furthermore, a victory was recorded with Sailcloth Technology's sailcloth in the Vendée Globe, a non-stop round-the-world solo sailing race, in which the record was broken by no less than 6 days.

Gamma Comfort & Style

Turnover in the Gamma Comfort & Style sector fell short of the first half of last year. Turnover totalled EUR 193 million (2004: EUR 207 million). Following a downward trend in the first quarter, Sleep Care Fabrics was able to make a partial recovery in the second quarter.

The operating result (excluding restructuring costs) was a profit of EUR 8.4 million (2004: 12.7 million), mainly due to lower results in Sleep Care and Car Fabrics. Sleep Care Fabrics suffered from declining volumes, while Car Fabrics was faced with continual price pressure.

The companies in the Gamma Comfort & Style sector were involved in a number of interesting projects. For example, Sleep Care Fabrics presented an innovative mattress fabric based on bamboo, Car Fabrics supplied three types of car upholstery for the Peugeot Caméléo, and Exotic Fabrics was represented alongside major designers like Dolce & Gabbana and Cacharel at the Africa exhibition 'Beyond Desire' in the Fashion Museum in Antwerp.

Sleep Care Fabrics was faced with a downturn in sales of woven mattress fabrics, particularly in the United Kingdom and Australia. The business unit also suffered from the growing trend towards one-sided mattress fabrics in the USA. In all markets there was increased demand for knitted products, for which the knitting capacity was expanded worldwide. Fiercer competition led to further price pressure in Europe. To improve its cost position, Sleep Care Fabrics is intensifying its strategy of bringing costs into line with the geographical spread of its operations. To this end, capacity in Western Europe will be further reduced and there will be more production in low(er) wage countries. Nothing concrete can be said at the moment regarding possible consequences for the workforce. In July, Telartex, a Mexican producer of mattress ticking, was taken over. With this acquisition, the business unit has gained a leading position in the highly promising Central American market. Furthermore, the American market will be served from Mexico.

Car Fabrics was able to retain its market position in spite of difficult market conditions. Positive effects of cost reductions and an upward trend at Bhilwara Melba De Witte in India only partly offset the growing price pressure.

Exotic Fabrics was faced with difficult market conditions, particularly in Côte d'Ivoire and Ghana. While lower turnover was posted for the local brands Uniwax (Côte d'Ivoire) and GTP (Ghana), the top brand Vlisco (Netherlands) achieved slight growth. To further improve GTP's cost position, the business activities of Juapong Textiles Ltd. of Ghana were terminated with effect from 1 July 2005.

Juapong spun and wove cotton into cloth for its own production facilities in Ghana. Because of the low prices for cotton cloth in Asia, it had become cheaper to purchase than to produce it. Furthermore, the business unit is focusing more and more on marketing and branding and is actively confronting parties who infringe its designs and trademarks.

Financial data

Financial expenses improved in the first half of 2005, decreasing to EUR 5.7 million (2004: EUR 6.4 million) as a consequence of lower interest rates and a lower average level of interest-bearing liabilities. Interest-bearing liabilities improved, decreasing to EUR 267.5 million (2004: EUR 279.3 million).

In June a new credit facility was arranged on much-improved conditions with a syndicate of six banks.

The effective tax rate fell from 36.7% to 34.3%, mainly due to the decrease in the natural tax rate.

The net profit for equity holders was EUR 9.5 million (2004: EUR 14.0 million). Earnings per share amounted to EUR 1.28 (2004: EUR 1.90).

Purchases of property, plant and equipment in the first six months totalled EUR 10.0 million (2004: EUR 15.8 million). Purchases of property, plant and equipment thus remained significantly below the level of depreciation of EUR 16.0 million (2004: EUR 16.9 million).

Working capital as a percentage of turnover improved to 34.8% (2004: 36.0%).

IFRS

The statements, figures and notes in this half-yearly report are based on IFRS. For an explanation of the consequences of the conversion to IFRS and consolidated financial information for 2004, please refer to the IFRS conversion document that has been published on the Gamma Holding website at the same time as this press release.

This half-yearly report has not been prepared on the basis of IAS 34, Interim financial reporting. At the time of the preparation of this half-yearly report it is not yet known which IFRS standards will be ratified and will be applicable as at 31 December 2005. For this reason the preparation of this half-yearly report requires certain assumptions to be made about the standards and interpretations expected to be effective as at 31 December 2005.

Outlook

Gamma Holding expects to achieve a net group result (excluding restructuring costs) for the full year that is comparable to the 2004 figures. This expectation is based on the current state of affairs, not taking into account the effects of additional restructuring measures and a possible portfolio adjustment.

Executive Board of Gamma Holding N.V.

Helmond, The Netherlands, 26 August 2005

Profile

Gamma Holding develops, manufactures and sells innovative, high-quality textile-based products throughout the world. It employs around 8,000 people in 36 countries. Its headquarters are located in Helmond (The Netherlands) and its shares are listed on Euronext Amsterdam.

Gamma Holding comprises two sectors, Gamma Technologies and Gamma Comfort & Style, with activities in belting, filtration, coatings and composites, and sailcloth technology, as well as sleep care, car and exotic fabrics.